FDI and International Trade: A Review

Abstract

As an important aspect of globalization, FDI (Foreign Direct Investment) has always been an important topic that cannot be overlooked in international trade theory. Based on the classical theory, this paper sorts out many outstanding studies on FDI. Research suggests that the main incentives for companies' different forms of foreign investment are different. Among them, horizontal FDI is a trade-off between trade costs and the fixed costs of factory construction, while the main purpose of vertical FDI is to reduce production costs by cashing in on the comparative advantages of different countries. Another angle to study FDI is to ascertain the boundaries of enterprises. The results show that products with different characteristics will make enterprises have different choices of vertical integration and outsourcing. FDI has a variety of economic effects. Technology spillover effects have different impacts on the productivity of enterprises, while the market integration resulting from direct foreign investment can also provide enterprises with multi-dimensional profit increases.